Corporate legal teams play an important role in helping publicly traded companies prepare for compliance. Leaders of in-house counsel should consider establishing a task force to assess their organization`s ESG readiness, including current ESG reporting and disclosure practices, and to lead efforts to identify ESG issues that could compromise compliance with the SEC`s proposed climate change disclosure rules. Investors need consistent and comparable information on climate-related risks from the companies in which they invest. This disclosure will help companies improve their risk management, attract investors and strengthen their global competitiveness. At the same time, opponents of the proposed rule are lining up to challenge it. They raise many concerns, including questioning the scope of the SEC`s statutory powers, asserting that disclosures conflict with the First Amendment, and emphasizing the doctrine of key issues that the Supreme Court increasingly relies on to disparage the agency`s rules. [15] Provide real-time reporting on public disclosures to support consumer decision-making and choice In proposing this rule, the SEC states that it addresses investors` “need for information about climate-related risks” that “have current financial implications.” [8] This proposed rule builds on the SEC`s established authority to require disclosures to ensure investors have the information they need to make informed decisions. In short, the status quo of self-disclosure is costly for both issuers and investors, undermining the efficiency of investment decisions and the efficiency of investments. Clear SEC disclosure rules that normalize climate disclosure would reduce these burdens. The energy sector has pushed back the closing threshold, arguing that such disclosure would contain irrelevant information and confuse investors rather than help them make informed decisions. In fact, the Climate Disclosure Acts of 2018, 2019, and 2021 — none of which were signed into law — did not pass any legislative proposals that would have ordered the SEC to adopt rules requiring public companies to disclose their direct and indirect greenhouse gas emissions. Therefore, there is an argument that Judge Roberts` reasoning of West Virginia is directly applicable to the SEC`s proposal to increase climate risk disclosure.
[16] SEC Proposed Rule, pp. 165-166. Note that scope 3 emissions account for the majority of greenhouse gas emissions in some sectors. For example, data from S&P Global revealed that Scope 3 emissions accounted for 75% of total emissions from the electricity sector in 2019. See Brandon Mulder and Kate Winston, US power utilities begin add Scope 3 emissions to climate goals, S&P Global Commodity Insights (2022), www.spglobal.com/commodityinsights/en/market-insights/latest-news/natural-gas/032922-feature-us-power-utilities-begin-adding-scope-3-emissions-to-climate-goals. For registrants who have already conducted scenario analysis, developed transition plans or publicly established climate-related targets, the proposed amendments would require certain disclosures to allow investors to understand these aspects of registrants` climate risk management. “The proposed rules are directly consistent with the expanded disclosures we sought to make more informed investment decisions and meet the requirements of California state law,” California`s $439.8 billion public employees pension system, Sacramento, said in a commentary. In addition, the cost of inaction is too high and the proposal “positions investors and companies to reduce their financial risks,” M.S.
said. Rothstein, executive director of the Boston-based Ceres Accelerator for Sustainable Capital Markets, in a statement. Referring to Mr. Gensler`s statement, Mr. Rothstein said: “Current disclosure methods are `fragmented` and standardized mandatory disclosure will help add more consistency and stability to the market.” The SEC`s proposed rule would create a new disclosure framework with a more detailed disclosure regime than the Task Force on Climate Change Financial Reporting framework. Financial institutions are particularly concerned about the SEC`s alignment with the TCFD framework and the International Sustainability Standards Board. The Securities and Exchange Commission (SEC) recently proposed that companies require information about climate-related risks, such as droughts, wildfires or market changes, that may impact their business, as well as climate goals or planning processes the company has developed in response to climate risks. Companies would also report their greenhouse gas emissions. The SEC`s goal for this rule is to “provide consistent, comparable, and reliable — and therefore useful — information to investors.” [4] Comments on the proposed regime are open until June 17.
In contrast, the Securities Act of 1933 and the Securities Exchange Act of 1934 are the fundamental laws under which the SEC issues rules. As SEC Chairman Gary Gensler explained when announcing the proposed climate risk disclosure rules, the SEC acted as usual in accordance with these statutes: it required disclosure of publicly traded companies to protect investors. The SEC`s proposed rule would require standardized climate-related information in filings and reports to the Commission.